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Johannesburg - Rand Merchant Bank (RMB) currency strategists said on Wednesday they believe that the rand "seems 15% or so overvalued", and forecast that the unit will start to weaken more substantially in 2012.
Currency strategists John Cairns and Nema Ramkhelawan said in a note that they expect the rand's strength to last throughout this year.
"However, given our expectation of an increase in the US Federal Reserve funds rate by the middle of next year, we maintain our core forecast that the unit will start to weaken more substantially in 2012."
They said that the overvaluation of the local unit would become evident amid deterioration in the current account and a stronger dollar.
RMB economists Carmen Nel and Laura Maree said domestic data suggest that growth has become broad-based.
Cairns and Ramkhelawan said that the "soft patch" experienced by the global economy is likely to result in a mid-year growth slowdown.
Elevated food and fuel prices would drive domestic inflation higher over the next few months, according to the bank.
"While this might be the case globally, SA differs from the developed world in that wage growth and administered price inflation remains elevated, compounding food and fuel costs, leading to generalised price pressures," it said.
RMB highlighted the fact that the rand's correlation with the euro/dollar had grown considerably over the past month. "Concerns over a sustained slowdown in global growth and indecision over the restructuring of Greek debt has provoked intermittent bouts of risk aversion. Risk appetite should recover as global data improves, giving impetus to the euro and hence the rand," it said.
Cairns and Ramkhelawan added that the local unit has also derived support from US equities, which are edging closer to the 12 000 level after slipping almost 5% since the start of June.
"The Dow Jones has performed poorly since May as concerns over the US regulatory and fiscal environments, employment conditions within the country and the impact thereof on real disposable income as well as changing debt dynamics across the world have dampened risk appetite," they said.
Currency strategists John Cairns and Nema Ramkhelawan said in a note that they expect the rand's strength to last throughout this year.
"However, given our expectation of an increase in the US Federal Reserve funds rate by the middle of next year, we maintain our core forecast that the unit will start to weaken more substantially in 2012."
They said that the overvaluation of the local unit would become evident amid deterioration in the current account and a stronger dollar.
RMB economists Carmen Nel and Laura Maree said domestic data suggest that growth has become broad-based.
Cairns and Ramkhelawan said that the "soft patch" experienced by the global economy is likely to result in a mid-year growth slowdown.
Elevated food and fuel prices would drive domestic inflation higher over the next few months, according to the bank.
"While this might be the case globally, SA differs from the developed world in that wage growth and administered price inflation remains elevated, compounding food and fuel costs, leading to generalised price pressures," it said.
RMB highlighted the fact that the rand's correlation with the euro/dollar had grown considerably over the past month. "Concerns over a sustained slowdown in global growth and indecision over the restructuring of Greek debt has provoked intermittent bouts of risk aversion. Risk appetite should recover as global data improves, giving impetus to the euro and hence the rand," it said.
Cairns and Ramkhelawan added that the local unit has also derived support from US equities, which are edging closer to the 12 000 level after slipping almost 5% since the start of June.
"The Dow Jones has performed poorly since May as concerns over the US regulatory and fiscal environments, employment conditions within the country and the impact thereof on real disposable income as well as changing debt dynamics across the world have dampened risk appetite," they said.
